AT&T, Verizon, Sprint Estimates too High, Says MoffettNathanson

By Tiernan Ray

Independent telecom analyst Craig Moffett, of the eponymous MoffettNathanson LLC, this afternoon offers in a report to clients that investors can look forward to a “grim reality” in the stocks of AT&T (T), Verizon Communications (VZ) and Sprint (S), as “consensus expectations appear rich.”

Moffett cites reports that T-Mobile U.S. (TMUS) may start to buy customers out of their current contract by paying the “early termination fee” (ETF) on their behalf, a speculative report about which appeared on “TmoNews,” the “Unofficial T-Mobile Blog” on Friday. T-Mobile is hosting a media event at the Consumer Electronics Show on January 8th, as noted today by AllThingsD‘s Ina Fried.

It remains to be seen if T-Mobile will do that, he concedes, but if so, “AT&T in particular will face higher churn (a plan to buy out ETFs would be most appealing to families with compatible devices, which in T-Mobile’s case means GSM-based AT&T), but all carriers would suffer in response, and would potentially need to respond, triggering lower ARPU and lower margins for everyone.”

With or without such a radical move, however, Moffett asserts revenue growth expectations of perhaps 3.5% for all four carriers, combined, in 2014, is more likely to turn out to be 2.1% or so. And a consensus Ebitda margin estimate for 41.1% may actually turn out to be 39.5%.

Regarding Sprint, whose estimates he sees as being the most unrealistic at the moment, Moffett casts doubt on rumors the company might try and buy T-Mobile, something that was speculated about on Saturday by Bloomberg‘s Alex Sherman and Cornelius Rahn.

Writes Moffett, “One fascinating reading from a Washington expert with whom we conferred postulated that it was Sprint’s own Washington office that had floated the story in order to elicit a response from experts that would demonstrate to their Japanese owners that a merger simply isn’t feasible from a regulatory standpoint.”

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There are 6 comments

DECEMBER 23, 2013 7:54 P.M.

Rob Lopez wrote:

This is all speculation on the author part about Sprint. What he doesn't realize that Sprint shares are moving up because of the new things they are doing with there TDD-LTE network. The Network is design for super fast download speeds for videos! That is the trend and Sprint understands where this is going. The TDD-LTE has been tested at download speeds at 150+ mbps. Plus, the Author doesn't realize that China Mobile is also putting in a TDD-LTE network and Google just locked down a contract to sell China Mobile phones that ONLYwork on the Sprint network...get it! That's why the stock is going up!

DECEMBER 23, 2013 8:18 P.M.

Anonymous wrote:

SPRINT and T MOBILE will disrupt ATT and VERIZON'S business ,why ? because finally we have businesses thinking out of the box. ATT AND VERIZON still governed with all style management that is very vulnerable to someone coming with new vision. ATT and VERIZON STUCK IN THE PAST.

DECEMBER 24, 2013 10:30 A.M.

what do I know wrote:

Not sure that this guy is correct. With the Softbank acquiring Sprint it seems a different mentality has been offered up and while things slowly change, the changes seem to be working. However do think if Sprint merges with T-Mobile there will be way to many folks remembering the Sprint Nextel merger of two different networks. Since Sprint and T Mobile are different types of networks CDMA and GSM it might be if it happens a win for ATT for those who wish to stay with GSM. Just don't know but do think the next two years will be the tell tale for Sprint stock prices and its company over all. Will it fizzle or will it ultimately become a foreign phone company like T-Mobile who just sells service in the USA.. Who knows.

DECEMBER 24, 2013 2:06 P.M.

Anonymous wrote:

I have always respected Barron's but this article takes that respect down a notch. The Nikkei reports SoftBank (SFTBF, SFTBY) is "in the final stages of talks" with Deutsche Telekom (DTEGY, DTEGF) regarding a deal in which 78%-owned Sprint (S -0.2%) would acquire Deutsche's 67% stake in T-Mobile USA (TMUS +1%). Sources add the deal could happen as soon as next spring, and could be worth more than ¥2T ($19.2B).

DECEMBER 30, 2013 3:33 A.M.

Anonymous wrote:

This Moffett guy is full of crap is is wrong more than the Weatherman

DECEMBER 30, 2013 11:52 A.M.

Robert wrote:

Sprint and T-Mobile, the nation’s 3rd and 4th largest wireless providers respectively, have shown interest in a merger that would allow the merged entity to compete more effectively with the two industry giants in Verizon Communications Inc. (VZ) and AT&T. The deal would create a company with close to 100 million subscribers, making it a serious challenger for AT&T and Verizon, both of which have over 100 million. http://bit.ly/SprintAcquisition

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.